Question

Chapter 6

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation: 43,000 38,000 82 A A Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) $ 564,000 A 16 10 A A $ 774,000 Management is anxious to assess the profitability of the new camp cot during the month of May. Required: 1. Assume that the company uses absorption costing. a. Determine the unit product cost. b. Prepare an income statement for May. 2. Assume that the company uses variable costing. a. Determine the unit product cost. b. Prepare a contribution format income statement for May.

Part 1A

Part 1B

Part 2A

Part 2B

Answer 1

Requirement: 1a High Country Unit Product cost using Absorption Costing Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head (774,000/ 43000) Unit Product cost 16.00 10.00 1.00 18.00 45.00 Requirement: 1b High Country Absorption Costing Income Statement Sales (38000 * $82) Cost of Goods Sold Gross Margin Selling and Administrative Overheads Operating Income or loss 3116000 1710000 1406000 640000 766000

Requirement: 2a Unit Product cost using Variable Costing Direct Material Direct Labor Variable Overhead Cost per unit 16.00 10.00 1.00 27.00 Requirement: 2b Variable costing income statement 3116000 1026000 76000 Sales (38000 * $82) Variable Expense Variable cost of goods sold (@27) Variable Selling and Administrative Expense (@2) Total Varible Expenses Contribution Margin Fixed Expenses : Fixed manufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses Net Operating Income 1102000 2014000 774000 564000 1338000 676000